CAIRO: Talaat Moustafa Group (TMG) Holding is changing a 20-year strategy centered on the construction sector to focus more on the hotels and tourism sector, its executives said this week.
In an event organized and hosted by the Egyptian Investment Management Association (EIMA), TMG executives explained that this shift in strategy aims to get its hotels and tourism investment sector to contribute 35 percent of revenues. It now generates 9 percent of total revenues.
Currently, 91 percent of revenues are derived from the construction sector.
Jihad Sawaftah, vice president and CFO of TMG, explained that among the reasons for such a shift is to increase the flow of stable income from hotels and resorts for risk management purposes; in case the real estate sector continues to suffer under the global financial crisis.
In addition, he continued, the growth rate of the real estate sector started to slow down. So in order to keep the total growth rate of the whole group – they have a 20-percent target – they came up with this strategy.
In a two-hour presentation, executives of TMG Holding discussed the first quarter results the future plans of TMG and touched upon the effects of the death sentence former CEO Hisham Talaat Moustafa received two weeks ago.
TMG’s net profits declined 27 percent in the first quarter of 2009 compared to the same period in 2008.
Marian Bakhoum, TMG’s planning and business development director, said the decline is due to “the wait and see policy, which is being followed by many customers in Egypt even with 500,000 marriages a year.
However, TMG also announced some good news. The company recently established the mortgage finance arm, Tayseer. It provides services to two types of client: individual clients and real estate companies. Tayseer signed its first contract with the latter last month.
TMG Holding will soon embark on its second regional expansion in Algeria; the first was in the Saudi market in 2006, said Sawaftah. “We have met the Algerian prime minister and we are working to expand our operations there, said Zaki El Guiziri, vice president for hotels and business development.
“We are looking forward to have 40 percent of real estate revenues driven from the Saudi Arabian market, added Sawaftah.
TMG Holding currently has a construction project in Riyadh and in Jeddah.
This September, TMG will launch Nile Hotel that will be managed by Kempinski, the international hotels’ management company.
An audience of asset managers showered TMG executives with questions during the presentation.
Although Tarek Talaat Moustafa took over the leadership of the groups since the imprisonment of his brother nine months ago, there were rumors that Hisham continues to manage the group from behind bars. Such rumors fueled concerns when the death sentence – still not final – was announced last month.
The board is in charge of making decisions, not just the CEO, said Sawaftah. Decisions are taken after consulting with the concerned committee.
“TMG is a corporation, not a family business any more, and each committee revises the decision made with one main goal: maximizing the profitability of the company, said Hossam Hilal, board member and head of the audit committee.
TMG has built a reputation for its strict commitment to meeting deadlines. Now they want to deliver ahead of deadlines in order to “generate more cash, according to Sawaftah.
The strategy was has translated into LE 2.34 billion reported in March 31, which represent 4.2 percent of TMG’s total assets in its first quarter financial results.
But how TMG will use this amount of cash in hand, particularly in light of frequent interest rates cuts? And why doesn’t TMG use this cash to pay off – at least partially – a LE 1.868 billion debt?
“We have restricted cash policy; the liquidity we have comes from down payments for units in the construction sector, and the debt is mainly from the hotels and tourism investment sector, said Sawaftah.
“TMG has low risk cash investment policy; we have two ways to invest our cash: Treasury bills . and fixed income deposits, he added.
TMG Holding has been operating in Egypt for the last 20 years. Five companies operate under the group covering business in the construction and hotels and tourism sectors.
TMG dominates “30 percent of the construction market in Egypt, according to Sawaftah. It takes pride in working for the middle class and upper middle class in Egypt, and has delivered “57,000 units in 20 years, in which 125,000 Egyptians now live , he added.
TMG’s capital totaled LE 8.7 billion in March 31, 2009, compared to LE 26.7 billion in March 2008.
Sawaftah told the Daily New Egypt at the end of the meeting that Hisham Talaat Moustafa had prepared the Group to work without him, long before the criminal charges filed against him.
“He used to say what if I got a heart attack, the group should live on after me, said Sawaftah